HSBC To Continue Dividend Payouts Despite Q1 Fall In Profits

HSBC recently announced its results for the first quarter of 2016, reporting a fall of 14 percent arising from the decline in revenues from its investment banking and wealth management businesses. The bank posted a profit of $6.1 billion for the quarter ending March 2016, dropping from $7.1 billion registered during the same period last year.

The results were however better than expected as analysts had forecast a pretax profit of $4.3 billion. The stronger performance has been attributed to HSBC having managed its costs better than anticipated and also from the bank's trading business performing better than expected in the turbulent market condition earlier in the year.

Reuters

In a statement Stuart T Gulliver Chief Executive said

Our first-quarter performance was resilient in tough market conditions that affected the entire banking sector. Profits were down against the very strong first quarter of 2015, but we increased market share in many of the product areas that are critical to our strategy

For the first quarter, HSBC has reported $5.4 billion as its adjusted profit before tax which was a drop of 18 percent over the same period in 2015. The adjusted revenue for the quarter went down by 4 percent reaching $13.9 billion.

Despite this, the bank announced dividend payouts for its shareholders unlike its peers such as Barclays, Deutsche Bank AG and Standard Chartered who have halted or reduced dividend payouts as a result of the pressure on their profit margins. At a 8 percent yield, HSBC’s dividend rate is the highest among major European banks.

Analysts have questioned the viability of offering such dividend payouts. Bernstein analyst Chirantan Barua said that the policy was not tenable in the current global market scenario and also considering the fact that HSBC is yet to reach the regulatory threshold for capital.

Investors have seen a drop in earnings per share, going from $0.26 in the first quarter of 2015 to $0.20 for the same quarter this year. This is likely to strengthen the chances of HSBC initiating a share buyback in order to bolster the share price which has declined by 28 percent over the past 12 months.

Investors have also expressed concern over the bank’s plans to expand into China. There are fears that it might not be able to improve its revenue without overshooting its cost of capital.

Gulliver said that the 22 percent drop in revenues from the internalization of the yuan was due to the customers’ loss of interest in forex trades. He expects other initiatives launched in the market to cover these losses in the coming months.

---